Three tech suppliers thrashing the market

In March this year, the government announced an initiative to create a world-leading digital economy in Britain. The Digital Strategy places skills, infrastructure and innovation at its heart, and aims to make Britain the best place to start and grow a digital business, trial a new technology or undertake advanced research.

Against this backdrop specialist technology companies like Oxford Instruments, which invented the world's first superconducting magnet in the early 1960s, could thrive.

Today, the company, which supplies microscope technology and scientific instruments to Chinese and Ivy League universities, amongst others, announced a 9% increase in revenue and a 7% rise in adjusted profit before tax for the year to 31 March 2017. The share price rose more than 6% on the news, and now sits not far off a two-year high.

For fans of technical analysis, a recent rally hit the buffers at the 1,130p area - a 50% Fibonacci retracement of the decline from 2014 high to 2015 low, and typically a tough level of resistance.

Oxford Instruments' share price had been depressed for a couple of years following a pair of profit warnings in 2015. Early that year, Oxford blamed sanctions against Russia for damage to the bottom line, then a slowdown in demand from China during the summer.

An analyst at the time warned investors would need "patience and nerve". He was right.

But the company has enjoyed something of a recovery in recent months. The share price is up almost 50% in 2017, and the market cap now stands at £620 million.

Along with peers in the nanotechnology space such as Judges Scientific and Spectris, which specialises in measuring instruments, it has outperformed the FTSE All-Share index over the last year and in 2017 so far.

Having undergone a restructuring programme and completed a number of disposals of subsidiary businesses, Oxford could be well-placed going forward.

Broker Liberum says a global recovery in R&D and a focus on nanotechnology, combined with its technical expertise, should benefit Oxford Instruments. Disposals have also materially strengthened its balance sheet.

Last month, Liberum analyst Ben Bourne upgraded his price target for Oxford from 690p to 1,150p.

Broker Shore Capital believes the company could benefit further by reducing its cost base and increasing pricing. Significant investment in its Nanotechnology Tools business is also required to keep its products at the leading edge of developments and innovate new lines.

As nanotechnology becomes more developed, Oxford's technologies have the potential for strong growth fuelled by technological superiority, which would protect orders and margins, in Shore Capital's view. Continued demand from the Chinese public sector is also a big positive.

The question is whether this is a company-specific story or a wider industry recovery. The technology sector has bounced back from its post-Credit Crunch lows and has outperformed the FTSE All-Share significantly since then, and technology is increasingly pervading other industries.

Tech firms have established themselves in niche parts of the market have first mover advantage and will have an important role to play in the overall growth of new, innovative technologies, all of which justify government backing.

For investors and politicians alike, hope here is that one of these companies will become the next ARM Holdings, the Cambridge-based star bought by Japanese giant Softbank for £24 billion in September 2016.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.